Like many industries, Covid-19 had a massive impact on retail and created a sharp divide. If you found yourself on the wrong side of that divide, demand completely evaporated, yet if you were on the right side sales boomed. While many non-essential high street stores often couldn’t trade, online picked up a lot of the demand. We will look at some of the trends underlying the significant growth in online over the last year using the latest stats from the IMRG Capgemini Online Retail Index, the primary performance indicator for the UK’s online retail market, and address key challenges retailers will face this year.
Generally speaking, the rate of online growth had been slowing over the last 10 years; however, 2020 saw a +37% increase, over six times that of 2019.
After a subdued start to the year, the first lockdown (which started on March 23 2020) saw the trend change dramatically. E-commerce was a key beneficiary, as there were not many other options for spending money. By June, growth reached 57%. From July, as things started to open up again, the rate of growth declined a little but then rebounded as the second English lockdown was introduced in November. This latest, and we hope the final, lockdown has shown even stronger online growth throughout January to March at an average of +71%.
The pandemic has changed our behavior towards online channels – accelerating growth, driving adoption and evolving customer expectations on services. While this has been beneficial for overall e-commerce, underneath the story has been mixed; the IMRG Capgemini Online Retail Index helps us to understand these trends by product category and retailer type.
Exceptional demand for entertainment, home and garden, and health and beauty while ‘stay at home’ orders were in place left clothing at the bottom of the pile.
Drastic shifts in day-to-day needs translated to significant changes in demand for different product categories.
Electricals: this saw the biggest swing compared to previous years, up +91% in 2020, and is a category that is continuing to hold strong, up 78% in Q1 2021. Essentials such as hair clippers were popular in the first lockdown, as we reached out to technology to help us work and learn from home, as well as entertain us.
Home and garden: spending more time at home led to bumper results in this category, up +71% in 2020 and +120% in Q1 2021, from garden furniture to home office equipment and DIY.
Health and beauty: up +64% in 2020, with stronger demand in the lockdown periods that was driven by a focus on health products as well as beauty treatments.
Clothing: this saw a drop in sales v last year for the majority of 2020, finishing on a meagre +1% growth for the year as a whole as the need for formal or occasion wear disappeared. However, the start of 2021 has bought new hope and positive growth in clothing (up an outstanding +79% in January-March). This much-needed boost could be the start of the release of pent-up demand for the sector, with plenty of wardrobes in need of a refresh as we emerge from lockdown.
Multichannel retailers drive online growth figures
There has also been a big gap between who was securing the sales. At the start of the year, the online-only retailers had stronger growth compared to multichannel retailers, but once the first lockdown came in, the demand shifted very sharply over to the multichannel retailers. By the end of 2020, multichannel retailers finished the year up +55% v +9% online only.
This suggests a lot of new or infrequent shoppers, who would usually visit high street stores, transferred their custom to the online sites of those same trusted brands, rather than looking around for new ones. However, will these shoppers revert back to the high street this year, or have behaviors been shaped around online for these people now?
Divergences in growth by retailer size
As well as this, there are divergences by retailer size; small (
What can we expect one year on, emerging from the latest lockdown?
There is plenty of speculation as to what might happen this year as restrictions are eased. IMRG normally put out a forecast but, because of the traditional baseline, the previous year has been so out of kilter that the resulting prediction would be meaningless. The first quarter has been particularly strong as lockdown continues; however, as we move into April, some of the online growth rates are going to look odd this year. This is because growth was so strong during this period in 2020, it will be very difficult to achieve growth against them in 2021. This means low or even flat growth might be considered good performance when viewed within the overall context.
Some key challenges retailers will need to be addressing this year to stay ahead of the curve are:
Changes in consumer behavior as restrictions ease: as more customers are purchasing online, customer service and e-commerce shopping experiences are becoming more important at converting customers. E-commerce platforms ahead of the curve have adopted new tools, including virtual consultations and chatbots, to enhance the online experience. For example, the skincare company Kiehl’s launched virtual 1-1 skincare consultations to replace those that would usually take place in store, enabling them to meet the increased demand of consumer questions and keep their retail staff working.
Increasingly high expectations for digital experiences both online and in store: the pandemic has dramatically elevated consumers’ use of both on- and offline channels in tandem, whether for click-and-collect, contactless delivery or an array of other fulfilment options. The reliance on e-commerce has expanded into a fundamental dependence on still-evolving omnichannel shopping experiences – one that is poised to be the norm in 2021 as online interaction is expected to accelerate further in the next six months.
Evolution of the supply chain: over the past year, organizations have struggled to respond quickly to increasing disruption and to restore their operations to a steady, reliable state. Retailers were forced to implement and invest in the technology needed to best meet customer needs, and to adapt to the changing business landscape. We anticipate that the investment and adoption of digital technologies set to strengthen retailer’s online capacities will continue to accelerate, focusing their investments on becoming agile while driving investment into functions like demand planning, order management, data management and analytics.
This month we have reached a significant step towards post-pandemic life in the UK, with non-essential retailers opening their doors once again. While demand will now be able to be fulfilled through all channels, it is expected that many of those customers shopping online for the first time in 2020 will remain doing so. There is still unchartered territory ahead before consumer spending will converge to a ‘new norm’ but, broadly, the outlook for online is promising, even if the growth numbers this year might look a bit odd.
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Andy Mulcahy is a strategy and insight director at IMRG.
Lucy Gibbs is the retail lead for analytics and AI at Capgemini Invent.